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Are Disadvantaged Bidders Doomed in Ascending Auctions?

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A bidder is said to be advantaged if she has a higher expected valuation of the auction prize than her competitor. When the prize has a common-value component, a bidder competing in an ascending auction against an advantaged competitor bids especially cautiously and, hence, the advantaged bidder wins most of the time. However, contrary to what is often argued, a disadvantaged bidder still wins with positive probability, even if his competitor.s advantage is very large and even if the disadvantaged bidder has the lowest actual valuation ex-post. Therefore, the disadvantaged bidder has an incentive to participate in the auction, and the presence of a bidder with a small advantage does not have a dramatic e¤ect on the seller.s revenue.

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Paper provided by Centre for Studies in Economics and Finance (CSEF), University of Naples, Italy in its series CSEF Working Papers with number 169.

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Date of creation: 01 Nov 2006
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Publication status: Forthcoming in Journal of Industrial Economics
Handle: RePEc:sef:csefwp:169

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Keywords: common-value auctions; asymmetric bidders;

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